The present invention relates generally to computer implemented systems for facilitating real estate activities, and more particularly, to a system and method for tracking, monitoring, and supporting individuals to represent themselves towards the purchase of a real estate property.
In 1995 the United States Government adopted a National Homeownership Strategy (the xe2x80x9cStrategyxe2x80x9d) with a primary goal to propel the rate of homeownership to an all-time high by the end of the year 2000. The Strategy is described as xe2x80x9ca call to action, not an academic exercise.xe2x80x9d In the following quotation, the Strategy cited a major barrier that would have to be overcome to realize this goal: xe2x80x9cFor many potential homebuyers the lack of cash available to accumulate the required down payment and closing costs is the major impediment to purchasing a home.xe2x80x9d The Strategy further suggested that the real estate and lending industries needed to focus on three issues to overcome this barrier: 1) cut transaction costs; 2) reduce down payment and mortgage costs; and 3) increase availability of financing. In addition, a key element of the financing strategy was to pass on savings to consumers created through reengineering both the mortgage and real estate sales process.
The traditional path to homeownership requires the buyer to provide a down payment of approximately four to five times their normal monthly housing cost as a test of their homeownership commitment. This requirement can be difficult to meet for many homebuyers. Saving five or six thousand dollars often requires people to take on a part time job for as long as a year or more, especially when taxes, child care and transportation costs are considered. This means a potential homebuyer may need to spend an additional 400 to 700 hours away from their families while working to accumulate the necessary funds for a downpayment. This time commitment can be very disruptive to normal family life. Testing the buyer""s resolve to achieve homeownership in a manner that alienates them from their families is not in the interests of government or the consumer. Also, this process can be especially burdensome for single parent households.
The government has responded to this need with limited down payment assistance programs for first-time and low-income homebuyers. These programs have allowed many to attain homeownership, but it has brought frustration to even more people due to the limited funding availability. Stringent qualifications restrict disbursing funds to only the most needy of applicants. As budget cutbacks are threatened, the prospect of government subsidized programs as a consistent source of down payment assistance looks bleak. While the simplest solution may be to remove the down payment requirement altogether, this would require an act of Congress. The National Housing Act mandates a three percent cash investment from homebuyers using the FHA loan program offered through HUD, the Department of Housing and Urban Development.
Currently, other methods of measuring the buyer""s cash contribution into the transaction have been allowed by HUD. One well-known program, Habitat for Humanity, promoted by former President Jimmy Carter, allows lower-income homebuyers to contribute construction labor in what can be described as an old style xe2x80x9cbarn-raisingxe2x80x9d cooperative. This type of cash investment, known as xe2x80x9csweat equityxe2x80x9d, entered the FHA loan underwriting handbook in December of 1988.
While the Habitat for Humanity program has literally put thousands of people in their own homes across the country, it falls short of being considered a major solution. Because buyers are required to perform labor on the basic structural components of the home, such as framing, roofing, electrical, plumbing, etc., the program requires professional construction supervision to ensure that the participant""s efforts meet industry standards. In addition, in the resale market where over 80 percent of the transactions take place, the opportunity for the buyer to provide construction labor as the cash investment does not exist. Also, a physically impaired homebuyer would have difficulty participating. This encourages regulators to seek out a program design that reflects better compliance with the Americans with Disabilities Act, as well as one that is available on more homes to provide better selection.
Chapter 7 of The National Homeownership Strategy introduced homebuyer counseling as a new concept into the discussion of mortgage default prevention. Homebuyer counseling was cited as a practice that effectively reduces the risk of mortgage default. In order to promote its use, the Strategy recommended that pre-purchase counseling become an integral part of the homebuying process, that a predictable stream of funding sources be created for counseling, and that brokers, lenders and counseling providers pool their resources to expand homebuyer education.
Thus, HUD announced an initiative offering to reduce the charge it makes for FHA mortgage insurance by a quarter percent for buyers who participate in a HUD sponsored housing counseling program. The incentive was doubled one year later through Mortgagee Letter 97-37. HUD stated that it believed education made first-time homebuyers better homeowners and borrowers, and that such homebuyers represented a lower risk to the insurance fund. Therefore, the reduction in the amount of the up-front premium collected from these homebuyers was justifiable.
HUD also called upon the real estate and lending industries to market the initiative and even developed a special homebuyer training course called the Homebuyer Education and Learning Program (HELP). In order to promote its use, HUD allows homebuyers to obtain training even after they have become committed to a purchase contract. While it may seem that placing someone through homebuyer training after they contract to buy a home is putting the cart before the horse, HUD has little choice in the matter. HUD cannot force their training into the marketplace, but must work in cooperation with the real estate industry. Since the industry is dominated by a sales force that derives its income from commissions, it may be unrealistic to expect them to turn over control of their client to a government sponsored instructor.
Thus, use of true pre-purchase counseling is all but non-existent in the marketplace. What is actually being performed in order to obtain the FHA mortgage insurance premium discounts is pre-closing counseling. The difference is simple, yet important. Homebuyers are currently being sent to an abbreviated class after they have been obligated in a purchase contract and rarely before. This is in spite of the fact that true pre-purchase counseling was originally declared by HUD as being the preferred format. Mortgagee Letter 98-01 released in January of 1998 reprimanded the industry for allowing grossly inadequate homebuyer counseling in exchange for the mortgage insurance reduction. HUD warned that training must be provided in a classroom, face to face or electronic media format, and involve 15 to 20 hours of instruction to claim the premium discount. It is argued that the industry does not embrace pre-purchase counseling as it tends to undermine their control of the prospective homebuyer. By waiting until the client is obligated in an agreement to purchase a home, real estate agents prevent the possibility of losing a client as a result of information provided to them in homebuyer counseling sessions. Typically, only after purchasing a home is the buyer referred to a counseling program to claim the FHA insurance discount. While this defeats the purpose of educating them, it may well be that pre-closing as opposed to actual pre-purchase counseling is the best voluntary level of compliance HUD can get from the present real estate industry.
HUD""s difficulty in enforcing greater compliance with their pre-purchase educational curriculum stems from their policy of financing the mortgage insurance premium. Giving a discount on the up-front mortgage insurance premium does not reduce the buyer""s cash investment requirement, it only reduces their monthly payment by approximately $5. The nominal motivation of $5 is not sufficient to compel homebuyers to attend HUD""s full 15 hour classroom training. In fact, the incentive is so negligible that acquiring the discount becomes little more than an afterthought. A more compelling reward needs to be offered to entice homebuyers to attend these classes.
One response that resulted from the National Home Ownership Strategy""s call to action, was from non-profit organizations that generate down payment assistance through a fee paid by sellers. One such program is known as the Nehemiah Program, operated by Nehemiah 2000 Homeownership Inc. (Nehemiah) . Nehemiah imposes a four percent fee on the seller if the seller""s buyer is to receive a three percent down payment gift from the program. The trouble with such a design is that transaction costs increase instead of decrease. Buyers are told, that due to the large fee being paid by the seller, it is likely that they will have to pay the seller""s full asking price or possibly even more. It is apparent that the non-profit programs are really just providing 100% financing through inflated sales prices, which mitigates the value of such home buying designs. In addition, while such organizations are required to only dispense funds to those that have attended homebuyer counseling, the programs still accept training that occurs after a contract is entered.
Accordingly, public demand exists for a new format in real estate brokerage. Examining the results of the Gallup Poll""s annual Honesty and Ethics survey can best prove this. Since entering the poll in 1977, real estate agents have not been able to attain greater than a 17% public confidence rating for possessing high or very high ethics. This compares to the 50%+ratings received by doctors, dentists, engineers and the clergy. By re-engineering the real estate sales process, sufficient funds can be generated to fuel downpayment assistance programs that can entice homebuyers to attend HUD training courses prior to purchasing a home.
One solution to the problems of inconsistent down payment assistance funding and under-utilized pre-purchase homebuyer counseling is the utilization of a xe2x80x9cSelf-Representing Principalxe2x80x9d (SRP) format. This solution was invented by the Applicant herein, and approved by the U.S. Department of Housing and Urban Development for use with its FHA loan programs on May 13, 1998. The SRP format is rooted in HUD underwriting regulations that came into effect in Revision 4 of the 4155.1 HUD Credit Underwriting Handbook in June of 1992 as Section 2-10 (P). This regulation reads as follows:
Commission from Sale. If the borrower is entitled to a real estate commission from the sale of the property being purchased, that amount may be used for the cash investment with no adjustment to the maximum mortgage required. A family member entitled to the commission may also gift those funds to the homebuyer.
Many, including HUD, have assumed over the years that this regulation was provided for licensed real estate agents purchasing their own homes. This assumption was not true. The federal government defers to the state with regard to licensing requirements for real estate activities. The applicant herein has been unable to identify any state that prohibits unlicensed principal self-representation in real estate transactions. In fact, the California Department of Real Estate issued a letter indicating that principals do not have to be licensed to earn a commission while purchasing their own home. HUD acknowledged this fact when it issued approval of the SRP procedure. Multiple Listing Service rules typically specify that the commission is earned through the act of procuring or finding the buyer. In the SRP format, the buyers procure themselves, thereby earning the commission. It is possible for someone to represent himself or herself in a home purchase transaction without a license, but he or she cannot represent someone else.
A self-representing principal (SRP) is a non-real estate licensed individual that seeks to purchase a property for his or her own account under buyer-broker agreement through a Multiple Listing Service member-broker. The SRP obtains property availability information through the broker""s information system and support services. The brokerage agreement provides that the SRP will be entitled to a pre-negotiated share of the commission paid to the brokerage office that is earned through the SRP""s purchase of a home. The SRP may also be referred as a SPP, self-procuring principal, or a SDP, a self-directing principal.
Section 2-10(p) of HUD""s credit underwriting regulations allows the SRP format to provide down payment assistance through market efficiencies instead of government funding. In addition, it maintains compliance with the National Housing Act""s three percent cash investment requirement. The SRP format further allows those who are physically impaired and unable to take advantage of sweat equity programs, to reap the rewards of their homeownership dedication by obtaining downpayment assistance on the basis of their educational efforts.
Giving homebuyers the ability to use the commission as their downpayment results in a homebuying process that is more useful to all Americans. It allows them to access the money they need to buy their home by becoming educated about the homebuying process directly from HUD and before they have entered into a purchase agreement. The SRP format contributes to achieving HUD""s goals by providing a consistent non-government source of down payment assistance that HUD controls through their homebuyer education requirements. Since HUD""s approval of this program requires the buyer""s participation in pre-purchase, not pre-closing, counseling, HUD is assured of their opportunity to present the government""s information prior to the buyer entering a contract.
The SRP format gives buyers ample reason to attend a full-length HELP training course, as they are then capable of accessing thousands of dollars in commissions for use toward their down payment. In most cases, the entire down payment requirement can be met through the earned commission. The value in this design is its ability to create a homeowner of someone who otherwise would not be. Thus, the SRP format provides HUD with the carrot it needs to attract homebuyers to the HELP classes. The mass utilization of homebuyer education was a goal embodied in the National Homeownership Strategy and one which the SRP format should achieve.
As a bonus for someone using the SRP format, commission funds acquired in this manner are not considered taxable, but rather a reduction to the tax basis of the home. This is advantageous to the homebuyer in light of the new capital gains exemption of up to $500,000 on a personal home. The lack of taxability on the SRP""s commission stems from the fact that the homebuyer performs representation services for himself and the value of services one performs for oneself is not considered income.
The SRP format is therefore an alternative format to traditional brokerage practice. It employs the principles of the National Home Ownership Strategy to achieve the goal of expanding the availability of downpayment assistance. The SRP option puts homebuyers in control of the purchasing process and allows them to reap financial rewards which would be unavailable otherwise. By making homebuyers an integral part of this process, they are likely to be more deliberate in selecting their homes. This should result in greater homeownership satisfaction and decrease the possibility of default to the insurance fund.
Accordingly, the present invention comprises a computer system that tracks, monitors, and supports self-representation of a user in a real estate transaction. According to currently established requirements, the homebuyer using the system will have completed an educational program qualifying him or her for self-representation, and thus, at least a portion of real estate commissions for use towards downpayment of a home.
The system has access to a client database and a real estate property listings database. The listings database includes listings of property with property profile data. The tracking, monitoring, and supporting of the user comprises entering user profile data into the client database, the data including real estate property search parameters. The listings database is searched for a property profile matching the user profile. The matched property profile is retrieved from the listings database, and the user notified of the matched property. The property profile data might be transmitted in conjunction with the notification. Otherwise, the profile information is transmitted after the notification has been sent.
In one aspect of the invention, the system also tracks user self-representation activities relating to a matched property.
In another aspect of the invention, the system provides school district reports, or environmental hazard reports of a district where the matched property is located. The system further provides comparable sales reports or offer assistance reports of the matched property.
In yet another aspect of the invention, the system also coordinates the viewings of the matched property.
In still another aspect of the invention, the system creates a demand feature profile having property features from a plurality of user search parameters in the client database, and searches on assessor""s property database for a property matching the demand feature profile. The assessor""s property database includes profiles of properties that have not been placed for sale. The system further informs an owner of the matched property of market demand for the property.